At a Moscow forum on Russian exports last week, President Vladimir Putin’s representative claimed the country’s economy is just fine despite sanctions over the Ukraine war.
Dmitry Peskov said:
"You know that a huge number of sanctions are applied against Russia by the countries of the so-called collective West ... There is no vacuum in such economic cooperation. If some leave, some opportunities disappear, then this vacuum is filled by others, and new, more attractive opportunities appear ...
“As you can see, development continues here ... Despite the difficult times, the country is developing and will continue to develop."
Either negative gross domestic product (GDP) is considered “developing” by the Kremlin, or Peskov misleads. At least he acknowledged some “difficult times,” as Russia’s own institutions report.
Just for the basics: Dictionary.com defines “develop” as “to bring to a more advanced or effective state, to cause to grow or expand.”
That’s what was happening in Russia until Putin launched his full-scale invasion of Ukraine on February 24. Sanctions to punish Russia for the war roared in after that. Official Russian state figures now say the economy lurched into reverse, with GDP falling 4.1% in the second quarter of the year.
The sanctions hit transaction systems and disrupted supply chains, causing domestic demand and exports to collapse. According to the August forecast of the Central Bank of Russia, the third-quarter decline in the Russian economy will be 7%, and in 2023 Russia's GDP will continue to fall.
In its July forecast, the Russian Presidential Academy of National Economy and Public Administration predicted a 7.6% GDP decline in 2023, worse than this year’s expected 7.2% drop. The main reason is that sanctions have a cumulative effect, piling on as they go. A partial European Union oil ban and price cap, for instance, won’t hit until the end of this year.
Russian consumers are getting slammed by rising prices. Inflation hit a 17-year high at 16.9% in the second quarter, and growth in income isn’t keeping up.
Real income, meaning after adjusting for inflation, will decline by 2.2% in 2022, according to the forecast of the Russian Ministry of Finance.
Also on the decline: Russia’s piggy bank. The country’s liquid international reserves fell $102.5 billion from the pre-invasion mark of $643 billion. And Western sanctions have blocked access to $300 billion of Russian reserves, Reuters reported.
Production of passenger cars in Russia in January-August 2022 declined a whopping 65%, state-owned news service TASS said.
According to a World Bank global economic report in October, things aren’t looking up for Russia’s population of 144 million. The economic stall and inflation are expected to continue next year and longer, and poverty is projected to rise.
High oil and gas prices, driven by the war, have helped Russia bring in more revenue so far. But what happens with prices down the road is key – and there are no guarantees if they encourage widespread economic contagion, the bank says:
“The combination of smaller accessible international reserves (as half of Russia’s US$630bn international reserves were frozen because of sanctions), the suspension of its fiscal rule, and the reduction in domestic nonoil/gas revenues, all imply that Russia is now more exposed if fossil fuel prices and/or volumes fall as the global economy cools down.
“Moreover, the sanctions have led to a dramatic drop in total imports, restricting access to new technologies and equipment, and external financing, and thereby dampening medium- to long-term growth prospects.”
Western sanctions would have an even more devastating effect if China, India, and Turkey change course on buying Russian oil and gas. These three countries have tripled their oil purchases since the start of the war, Bloomberg reported.
Russia is selling to China and India on the cheap, the BBC said, while Europe and Japan work to phase out Russian oil and gas.